Home market value vs rebuild value — what to know

October 04, 2023 Homeowner

Home market value vs rebuild value — What’s it all mean?

When discussing homeowner insurance, you may hear unfamiliar terms, such as home market value vs rebuild value. What do these terms mean and why is it important that you know the difference between them?

“The costs associated with rebuilding a house add up to be more due to cleaning up the existing home or demolishing it. And when it comes to repairing or rebuilding a single home, the cost of labor and supplies are not purchased in bulk like they are when an entire neighborhood is built. In addition, inflation can tack on another cost hike when it comes time to buy materials for repairs.”

When it comes down to it, the market value of your house is what you’d pay for it today, or what you’ll ask someone else to pay for it should you sell it. Conversely, the rebuild value of your home may be more than the market value.

This is because the costs associated with rebuilding a house add up to be more due to cleaning up the existing home or demolishing it. And when it comes to repairing or rebuilding a single home, the cost of labor and supplies are not purchased in bulk like they are when an entire neighborhood is built. In addition, inflation can tack on another cost hike when it comes time to buy materials for repairs.

“While market value and rebuild value may both be discussed during the homeowner insurance policy process, the coverage amount on your insurance policy is generally based on the calculated rebuild value. The reason for this is to help make you whole in the unforeseeable event of a total covered loss to your home.”

It's important to note that land value doesn’t play into the rebuild cost at all, since the land isn’t rebuilt (or insured). The market value, however, will reflect the land value, as many people look at location, size and specifics of the land when buying a home.

Home market value vs rebuild value — What’s the cost to rebuild?

The insurance value of a home is typically based on a calculated rebuild value. Insurance companies use sophisticated tools to help determine this amount. A rebuild value factors in location, quality of construction and square footage, as well as the cost of supplies and labor.

Rebuilding also takes time. In 2017, after the wildfires in Northern California, rebuilds were taking between 12 and 24 months, and the cost was estimated to be between $160 per square foot for standard homes up to $800 per square foot for custom homes in higher-cost areas. The cost of supplies may surge upward in areas where there are a lot of homes being rebuilt at the same time due to a widespread event such as a wildfire or hurricane.

Home market value vs rebuild value — How is my coverage need calculated?

While market value and rebuild value may both be discussed during the homeowner insurance policy process, the coverage amount on your insurance policy is generally based on the calculated rebuild value. The reason for this is to help make you whole in the unforeseeable event of a total covered loss to your home.

Home market value vs rebuild value — How can I keep adequate coverage?

It is important to inform your insurance company when you make updates to your home, particularly when adding square footage. Certain upgrades or additions to your home may increase the rebuild value, and you’ll want your insurance policy to reflect these so that you don’t short yourself when it comes to an insurance claim.

At AFI, our experienced agents can help you determine if your homeowner coverage amount is adequate to protect your family and your future. Trust us to continue to serve you throughout your time in this home, well into the next.

Armed Forces Insurance: home insurance for veterans from people you can trust

Armed Forces Insurance has been a trusted advisor to American armed forces service members and veterans for more than 135 years. We’re not a giant corporate skyscraper full of slick insurance executives. We’re a small company headquartered just down the road from Fort Leavenworth in Kansas. We know each other, and our customers know us. If you’re looking for a someone you can trust to shoot you straight and help you protect your home and property, check out our homeowner insurance page.